At Policygenius, we use several factors — including third-party rating groups — to determine our best life insurance company recommendations. Moody’s Investors Service was founded in 1909 and provides ratings and reviews of Insurance Financial Strength — the ability of insurance carriers to pay claims.
Here’s how Moody’s ratings work and how you can use them to help choose your life insurance provider.
What does Moody’s do and why do its ratings matter?
Along with Standard & Poor’s and Fitch Group, Moody’s is among the largest credit ratings agencies in the world, and a respected source for analysis of the financial strength of banks, money markets, bond funds, and insurance companies. The U.S. government also uses it for regulatory purposes.
Moody’s ratings help investors — and anyone trusting a life insurer with their family’s financial protection — judge the stability and creditworthiness of financial institutions.
Why is a Moody’s rating important for life insurance companies?
That's why you should also look at the financial stability of a life insurance carrier, to ensure that your family will receive a death benefit after you’re gone.
Moody’s rates carriers according to a detailed "creditworthiness scale." Basically, that means it weighs the outstanding debts and other financial risks of national life insurance companies.
Knowing a company’s Moody’s ratings, along with other third-party credit ratings, can help you confirm an insurer’s financial reliability — and that can help you decide what carrier to choose.
How does Moody’s rating scale work?
Moody’s uses a multi-pronged rating system to determine a carrier's financial strength.
The ratings process includes four steps: 
The insurance company applies for a rating and Moody’s assigns an analytical team to the insurer.
The life company’s management presents the insurer's information to Moody’s analytical team.
The analytical team submits its proposed rating to a committee for a review and approval vote to ensure integrity and consistency.
The rating is shared with the life insurance company and in a press release issued by Moody’s.
The ratings review accounts for an insurance company's short- and long-term financial risk.
Moody’s short-term rating scale
Moody’s short-term ratings are based on an insurance company’s ability to repay short-term debt obligations. Moody’s defines "short-term debts" as obligations due for repayment in under one year.
Ability to repay short-term debts
Moody’s long-term rating scale
Moody’s long-term ratings are based on an insurance company’s credit risk of fixed-income obligations. These ratings reflect the possibility that a life insurance benefit payout may or may not be honored as promised.
Ability to repay long-term obligations
Highest quality, minimal risk
High quality, very low credit risk
Upper-medium-grade, subject to low credit risk
Medium-grade, moderate credit risk, may possess speculative elements
Substantial credit risk, with speculative elements
High credit risk, considered speculative
Very high credit risk, poor standing
In or very near default, highly speculative, some prospect of recovery in principal and interest
Typically in default, with little prospect for recovery of principal and interest
Long-term ratings may come with a 1, 2, or 3 added to the letter rating, which indicates how highly within its letter category a company ranks. A company rated Baa1 is less risky than one rated Baa3.
How Policygenius uses Moody’s ratings
Policygenius takes a comprehensive approach to determine the best life insurance companies available. We don't get paid for reviews and evaluate an extensive rubric of criteria to come up with robust, unbiased reviews to match you with the right life insurance carrier.
Moody’s ratings factor into our Financial Confidence category: consumer confidence based on scores from major financial rating institutions. We normalize ratings from Moody’s, Standard & Poor’s, and A.M. Best, to give companies a score out of 10.